April 2024 Illinois Real Estate Journal

Restoring the Ramova: McHugh Construction brings Bridgeport theater back to life

By Dan Rafter, Editor

Certain projects are destined to make a powerful impact on a neighborhood. And that’s what McHugh Construction’s adaptive reuse of Chicago’s historic Ramova Theatre is already doing in the Chicago neighborhood of Bridgeport.

McHugh Construction completed its $30 million adaptive reuse of the Bridgeport theater late last year, with the theater hosting its first live performance, Slo ‘Mo, a Chicago-based LGBTQ-centered dance party, on New Year’s Eve of 2023. McHugh’s work has transformed the Ramova Theatre from a long-shuttered single-screen cinema to an 1,800-person concert hall that is once again a landmark at its location of 3510-3520 S. Halsted St. in Bridgeport.

This is important not only for Bridgeport but for the neighborhood’s Halsted Street corridor, too. The section of Halsted surrounding the then-closed Ramova was dotted with empty storefronts. The hope is that the energy brought by the renovated Ramova will provide a boost to this section of Halsted, encouraging new businesses to locate here.

“Everyone is so excited about this,” said Andrew Totten, vice president of McHugh Construction, who spent long hours working on this two-year adaptive re-use project. “All the way through the construction process, people in the neighborhood were just so excited about this. They’d walk up and say, ‘My sister used to work here,’ or ‘We had our first date here. Can we just poke our head in?’ It

was such a part of childhood for so many people in that neighborhood.”

The renovated Ramova was a long time coming. The theater closed in 1985, after showing the movie Police Academy 2. It wasn’t exactly a glorious ending for a movie palace that first opened its doors in 1929.

The Ramova Theatre was an iconic building in Bridgeport thanks to its neon red marquee and Spanish-inspired architecture. In the ‘80s, though, the theater struggled to compete with newer multi-screen movie houses. That led to its eventual closure. It’s also why the new Ramova

The marquee outside the Ramova Theatre glows again. (Photo courtesy of McHugh Construction.)

RESTORING THE RAMOVA: MCHUGH CONSTRUCTION BRINGS BRIDGEPORT THEATER BACK TO LIFE

Certain projects are destined to make a powerful impact on a neighborhood. And that’s what McHugh Construction’s adaptive reuse of Chicago’s historic Ramova Theatre is already doing in the Chicago neighborhood of Bridgeport.

NAVIGATING THE CHANGING TIDES: INSIGHTS INTO THE DOWNTOWN CHICAGO OFFICE MARKET Spanning

15 stories and approximately 87,873 square feet, 609 Randolph epitomizes the need for adaptability in contemporary downtown Chicago office development.

RETAIL RENAISSANCE? CHICAGO’S PATH FORWARD IN 2024 AND BEYOND Chicago’s retail sector stands at a crossroads, navigating unprecedented challenges while harnessing newfound opportunities for growth.

INNOVATION & ADAPTATION: STRATEGIES FOR SUCCESS IN SOUTHEAST WISCONSIN’S INDUSTRIAL SECTOR

A historically strong market strategically located between major metropolitan areas like Chicago and Milwaukee, southeast Wisconsin’s industrial slowdown followed several quarters of robust net absorption, reflecting a complex interplay of factors.

TURF TALK: COMMERCIAL LANDSCAPING & SNOW REMOVAL STRATEGIES

From strategic layout considerations to thoughtful plant selection, every aspect plays a crucial role in transforming compact areas into thriving green havens.

VTS SURVEY: MORE THAN 80% OF OFFICE LANDLORDS SEEING AN INCREASE IN LEASE RENEWALS A slow recovery in the office sector? It’s better than no recovery at all. That’s the takeaway from VTS’ fifth annual Global Landlord Report released in early April.

CHICAGO STILL A HOTSPOT FOR DATA

CENTER DEMAND Chicago has become one of the most in-demand data center markets in the country, according to the latest research from JLL.

AVOIDING THE DAY-TWO DOWNFALL: FIVE WAYS TO SET UP A PROJECT FOR SUCCESS Whether a property is a new build or a redevelopment, the team moving development forward—owners, project managers, general contractors and subcontractors—must all collaborate to ensure smooth delivery and activation of the space without delay.

TECHNOLOGY DOMINATES TALK AT NATIONAL MULTIFAMILY HOUSING

COUNCIL ANNUAL MEETING From AI to EVs to 3D printing, the multifamily industry is experiencing a tech-driven transformation unlike we’ve ever seen.

ANOTHER HIT TO OWNERS: THE COSTS OF OWNING APARTMENT BUILDINGS

KEEP RISING Owning an apartment building? It’s getting more expensive, a challenge that multifamily owners should expect to face throughout the rest of 2024.

WITH CONSUMER SPENDING UP AND SAVINGS DOWN, WORKERS TURN TO PART-TIME EMPLOYMENT AND SECOND JOBS FOR RELIEF Despite the downward trend in inflation readings since June 2022, the “last mile” in getting inflation down to the Fed’s 2% target is proving to be more challenging.

SOME CRE GOOD NEWS: REPORT PREDICTS JUMP IN SALES ACTIVITY IN ALL FOUR MAJOR ASSET CLASSES … EVEN OFFICE Brokers, developers and lenders who worked through the challenges presented by high interest rates won’t be surprised to learn that investment sales volume fell for the second consecutive year in 2023.

CRE MARKETPLACE

Navigating the changing tides: Insights into the downtown Chicago office market

By Brandi Smith

Spanning 15 stories and approximately 87,873 square feet, 609 Randolph epitomizes the need for adaptability in contemporary downtown Chicago office development. This innovative boutique building situated in the vibrant West Loop neighborhood seamlessly blends historical charm with modern functionality.

“Companies have been drawn to this boutique new development due to its single-tenant floor plates, high-end hospitality driven amenity offering and convenient access to public transit and neighborhood amenities,” explained Aaron Schuster, First Vice President at CBRE. “Most of the tenants relocated from large skyscrapers as they desired a destination office that provides more identity and visibility.”

Already 85 percent leased, 609 Randolph is an example of a building that has succeeded in capturing the demand of tenants desiring to provide their employees with a unique and stimulating office environment as companies right-size and trade up in quality in a relocation, Schuster added.

As downtown Chicago’s office market experiences a period of transformation with the ongoing impact of remote work, shifting tenant preferences and economic fluctuations, one thing is certain: It remains a vibrant and resilient ecosystem, poised for a future defined by innovation and opportunity.

Lisa Davidson, Vice Chairman at Savills, painted a picture of gradual progress amidst lingering uncertainties.

“Occupancy is slowly moving up, but we foresee no major changes in the near future,” she said. “There continues to be a bifurcated market where the West Loop sees most of the transaction and tour activity. Rates aren’t currently being lowered, but concessions continue to be at record highs.”

Schuster emphasized the market’s ongoing adjustment as companies navigate lease expirations and return-to-office strategies.

“Return-to-office levels and activity in the loop have steadily improved and those tenants who have determined their return-to-office policies are pursuing best-in-class space and making longer-term lease commitments,” Schuster said.

Davidson spotlighted the disparities between downtown and suburban markets, citing the influx of new developments in the central business district compared to the suburbs.

“Those buildings that are highly amenitized, in energetic blocks or neighborhoods, and offer attractive spaces with abundant light and air are being leased first,” Davidson said. “Also,

many downtown buildings are featuring new spec suites, even for larger tenants, which can save on capital for the tenant as no major construction is needed and most are move-in ready. This concept is not as widespread in the suburbs.”

The increase in vacancy rates has been a focal point of discussion within the downtown office market. Schuster attributed this trend to tenants’ evolving workplace strategies.

“Tenants require less space as they implement more efficient workplace strategies,” he said.

“The increase in vacancy rates is most attributable to tenants contracting their footprints either in-place or in a relocation, or alternatively going fully remote, without the net new tenancy to backfill these spaces.”

The phenomenon of tenant move-outs and downsizing has left its mark on downtown office buildings, prompting landlords to adapt and innovate.

“Amenities, amenities, amenities!” Davidson responded to a question about how landlords can attract and retain tenants. “But also the spec suites make it easy for the tenant who is looking to move in immediately and not have to make substantial changes to the space. This also allows the landlords to offer more flexible and shorter lease terms.”

Schuster highlighted the value of reinvesting in building infrastructure and amenities to create compelling environments for tenants. Both experts agree that landlords who prioritize tenant needs and provide innovative solutions will succeed in the competitive downtown market.

Looking ahead, both Davidson and Schuster expressed cautious optimism for the future of the downtown Chicago office market. They mentioned recent commitments by companies like Google and J.P. Morgan Chase as positive indicators of the city’s resilience. Additionally, they pointed to ongoing revitalization efforts, such as the LaSalle Street Reimagined Project, as promising signs for the continued growth and vitality of the Loop.

Lisa Davidson

Aaron Schuster

Image by Jürgen Polle from Pixabay.

Retail renaissance? Chicago’s path forward in 2024 and beyond

By Brandi Smith

Chicago’s retail sector stands at a crossroads, navigating unprecedented challenges while harnessing newfound opportunities for growth. By embracing innovation, fostering collaboration and leveraging data-driven insights, investors and developers can chart a course toward a resilient and vibrant retail ecosystem, poised to thrive in the post-pandemic era.

The heart of Midwest commerce, Chicago is a bellwether for economic trends both locally and globally. In recent years, however, the retail market has faced unprecedented challenges. As we rapidly approach the halfway point of 2024, it’s crucial to dissect the dynamics shaping Chicago’s retail landscape to forge ahead.

In 2023, the Chicago Loop, renowned for its vibrant retail scene, encountered a sobering milestone: its highest retail vacancy rate on record, soaring past 30 percent. This surge reflects a broader global trend, with major urban centers grappling with increased vacancies amid the pandemic’s fallout.

Behind this phenomenon lies a complex interplay of factors. Chief among them is the correlation between retail and office vacancies. Historically, fluctuations in office vacancies have mirrored shifts in retail, a pattern evident in cities like Chicago, as well as other metro areas such as Toronto and London. However, the current surge in vacancies is unique, decoupled from traditional drivers like company downsizing. Instead, it underscores a fundamental shift in work patterns, with remote and hybrid models reducing foot traffic in urban cores.

Despite these challenges, Chicago’s retail market has exhibited remarkable resilience. Demand formation, measured by the absorption of retail space, soared in 2023, marking its 10th consecutive positive quarter, according to analysis by Zach Geller, associate research director at Lee & Associates.

“Demand for retail space rose by almost 4 million square feet by 2023’s year end,” he said, adding that this reflected a diverse array of users seeking retail space.

Projections for 2024 paint a nuanced picture of Chicago’s retail landscape. Employment is expected to continue its upward trajectory with local firms adding 30,000 new positions. Construction activity will see a modest uptick, yet deliveries are poised to outpace net absorption, leading to a continued rise in vacancy rates.

Rent growth, while expected to improve compared to the previous year, is predicted to fall below the prior 10-year average. The

average asking rent is forecast to reach $19.05 per square foot, reflecting cautious optimism tempered by lingering economic uncertainties.

The key to survival lies in adopting proactive strategies to thrive in uncertainty. Embracing digital transformation is paramount, as the pandemic has accelerated the shift towards online shopping. Retailers, experts agree, must leverage the emergence of AI technology and the redesign of existing spaces to meet evolving needs. AI enables retailers to analyze and customize the customer experience while optimizing operations behind the scenes. Concurrently, the redesign and reuse of structures reflect the surge in demand by

new and diverse retailers, showcasing peak creativity in the business of retail.

For example, Unibail-Rodamco-Westfield (URW) has unveiled plans for the redevelopment of Westfield Old Orchard, a shopping center in Chicago’s North Shore area. This transformation aims to create a unique destination blending retail, dining, entertainment, wellness amenities and luxury residences, all complemented by open green spaces and outdoor lounges. Slated to break ground in 2025, it is expected to begin welcoming residents in 2027.

Fostering collaboration between the retail and office sectors is also critical. Recognizing the

“Demand for retail space rose by almost

4 million square feet by 2023’s year end.”

symbiotic relationship between foot traffic and retail leasing, efforts to revitalize urban cores and incentivize in-person engagement are pivotal. Flexible lease structures and innovative retail concepts can help breathe new life into vacant storefronts, driving foot traffic and revitalizing communities.

Moreover, a data-driven approach to decision-making is indispensable. By harnessing insights from market analytics and consumer behavior trends, stakeholders can identify emerging opportunities and mitigate risks proactively.

Zach Geller

Image by Miguel Joya from Unsplash.

C a t o n C o m m e r c i a l R e a l E s t a t e G r o u p i s p l e a s e d t o a n n o u n c e C h r i s t i n a C a t o n K i t c h e l a s i t s n e w C h i e f

E x e c u t i v e O f f i c e r . T a k i n g o v e r f r o m h e r f a t h e r , B i l l C a t o n , t h e c o m p a n y ’ s f o u n d e r , C h r i s t i n a i s p o s i t i o n e d t o l e v e r a g e t h e c o m p a n y ’ s c o l l e c t i v e e x p e r t i s e t o o p t i m i z e t h e v a l u e o f c o m m e r c i a l r e a l e s t a t e a s s e t s f o r c l i e n t s w h i l e s u p p o r t i n g t h e s u c c e s s o f o u r t e a m m e m b e r s

THE FUTURE DIRECTION

Alongside Caton COO, Amy Hall, this significant leadership shift highlights the rare female representation in commercial real estate's C-suite, aiming to inspire more women to enter and lead within the industry.

BROKERAGE | APPRAISAL | MANAGEMENT

C a t o n C o m m e r c i a l R e a l E s t a t e G r o u p i s a l e a d i n g r e g i o n a l

c o m m e r c i a l r e a l e s t a t e f i r m d e d i c a t e d t o r e p r e s e n t i n g t h e i n t e r e s t s o f p r o p e r t y o w n e r s , t e n a n t s , a n d i n v e s t o r s .

Innovation & adaptation: Strategies for Success in Southeast Wisconsin’s industrial sector

By Brandi Smith

“It was inevitable,” Neal Driscoll, Midwest Region Partner at Dermody Properties, said about the slowdown in industrial absorption in southeast Wisconsin at the end of 2023.

A historically strong market strategically located between major metropolitan areas like Chicago and Milwaukee, southeast Wisconsin’s industrial slowdown followed several quarters of robust net absorption, reflecting a complex interplay of factors. Driscoll, in part, blamed the aftermath of the COVID-19 pandemic, which triggered a surge in demand for industrial space as companies rushed to adjust their logistics networks to meet heightened demand and mitigate global supply chain disruptions.

“It shifted the model from ‘just in time’ inventory management to ‘just in case’ inventory,” Driscoll explained. “Directly and indirectly, through third party logistics partners, tenants leased millions of square feet of warehouse and distribution space.”

As the economy began to normalize and the Fed responded to inflationary pressures by raising interest rates, the cost of capital increased, dampening expansion plans and cooling the industrial real estate market.

“These elevated rates contributed to economic uncertainty that caused a slowdown to the incredible e-commerce growth that southeast Wisconsin experienced,” said Ned Frank, executive vice president with Colliers.

Frank also said the trend of occupiers seeking to own their own real estate contributed to a reduced pool of potential tenants leasing large blocks of warehouse space. Notably, Uline’s

purchase of more than 100 acres of land in Kenosha for a new 1.4 million-square-foot facility exemplifies this shift towards ownership. It’s also an example of a trend Driscoll pointed out: that much of the industrial growth in southeast Wisconsin has been organic, spurred by the success of local companies.

“Over the past 10 years, however, it has become a very attractive submarket of the greater

Chicago market because the state and local governments are very business friendly, it has a great labor force and from a real estate cost perspective is significantly lower than many of the Chicago submarkets,” Driscoll said.

The region’s robust growth has also been driven by the increasing demand for specialized infrastructure from tenants, according to Frank, who said it’s particularly notable among users with significant infrastructure needs, such as heavy power requirements, temperature-controlled warehouses or large office space build-outs.

“Due to this trend of requiring infrastructure, landlords are experiencing high upfront costs by providing costly improvement needs,” Frank said.

He added that landlords are proactively addressing tenants’ significant infrastructure needs by incorporating these requirements into their speculative pricing strategies.

“For example, landlords may increase power to their building before securing a tenant because the lead time on that upgrade can be lengthy,” said Frank. “If a tenant has to wait for certain upgrades they will focus on different spaces to lease.”

Neal Driscoll

Ned Frank

Image by EFAFLEX_Schnelllauftore from Pixabay.

Recent data from the market shows the total inventory stands at 82,630,208 square feet with a vacancy rate of 11.82 percent. Year-todate sales amount to 19,600 square feet, while new leases encompass 1,059,865 square feet. Notably, net absorption stands at 1,022,799 square feet, indicating healthy demand for industrial space in the region. Additionally, there have been 1,152,984 square feet of completions year-to-date, with 1,582,560 square feet currently under construction, suggesting ongoing development activity to meet growing demand.

The surge of speculative construction has significantly impacted vacancy rates and market dynamics in the region, particularly in Kenosha and Racine counties, where Frank shared that there are currently six available buildings over 500,000 square feet.

“In the short term, this certainly affects tenant behavior because a tenant who needs a large amount of space will have numerous options to lease from,” Frank said. “This also influences their decisions on how much space to lease within a building. Landlords are willing to lease a portion of a space to a tenant and give the option to grow into the entire building over the length of their lease.”

“It will take some time to work through this inventory, most of which is commodity real estate, meaning there is little differentiation

“It will take some time to work through this inventory, most of which is commodity real estate, meaning there is little differentiation between buildings.”

between buildings,” echoed Driscoll. “Add to the overbuild the cooling we’re seeing today, and you’ll likely see flat to decreasing rents for commodity buildings.”

Amidst this landscape, notable developments are on the horizon, with Dermody recently making a significant investment in Pleasant Prairie. The company plans to build 2.4 million square feet of industrial space on the 190-acre property. This site stands out due to its unique attributes, being Wisconsin’s only rail-served site with connections to Union Pacific and Canadian Pacific, along with the potential to provide over 100 megawatts of power.

“By spring, the UP railroad service will be reactivated for our new tenant, WestRock. We’ve been engaged with other rail users since we bought the site last summer and we expect

that to continue,” Driscoll shared. “We’re extending the public road through our site and completing the rest of site work so we can quickly respond to similar build-to suit-requirements.”

“In a market where tenants require extensive infrastructure, this site has it all,” Frank emphasized.

Landlords and developers are adopting creative and flexible strategies to attract and retain tenants, according to Frank, who highlighted the importance of being as innovative as possible.

“Growing tenants into space over time, giving free rent upfront and granting tenants the right to purchase a building during their lease are just a few examples,” he said. “With the

amount of options that tenants have, industrial landlords and developers have to get imaginative.”

Driscoll predicted that success will boil down to the simplest approach.

“Good buildings in good locations will continue to attract good tenants,” he said.

Southeast Wisconsin isn’t just a good location, it’s a great one if you ask Frank.

“The market will continue to attract tenants because of its transportation infrastructure, skilled workforce and business friendly environment,” he said. “These factors keep the demand from industrial users strong, which will lead to absorption of space and a reduction in the vacancy rate.”

Maximizing Small Commercial Garden Spaces

By Tom Marsan

Tom Marsan is a certified snow professional who has been in the landscaping and snow removal industry for about two decades. He is an active member of ILCA and SIMA and is currently the general manager at Beverly Companies in Chicagoland

In the bustling world of commercial ventures, every inch of space holds potential for enhancing the customer experience and fostering a welcoming atmosphere. Amidst the concrete jungle, a well-designed garden oasis can serve as a respite, offering tranquility and visual delight. However, crafting a captivating garden in limited commercial spaces presents unique challenges that require innovative solutions.

From strategic layout considerations to thoughtful plant selection, every aspect plays a crucial role in transforming compact areas into thriving green havens. In this guide, we explore strategies and design principles to unlock the full potential of small commercial garden spaces.

Whether you’re revitalizing a rooftop terrace, courtyard, or storefront façade, these insights will empower you to create inviting outdoor environments that leave a lasting impression on patrons and visitors.

Draw Out Your Vision

Before diving into any garden project, start by measuring the area and creating a floor plan. Consider key aspects like furniture placement, plants, and hardscaping. This initial step allows for experimentation and ensures informed decisions before any purchases are made. A fire pit or other hardscaping additions are a lot easier to do on paper.

Utilize the Principles of Design

Incorporate the fundamental design principles of unity, repetition, proportion, color, and balance. These principles guide the layout and aesthetic cohesion of your commercial garden space, setting your landscaping apart from the competition.

Disrupt the Flow

Introduce visual interest by breaking away from standard square or rectangular layouts. Add larger elements like trees or sculptures strategically placed in corners to diversify the visual landscape. Add something to attract the eyes to a specific piece of the landscaping.

Maximizing Small Commercial Garden Spaces Beverly Companies

Utilize Angles

Optimize space and create the illusion of expansiveness by employing a 45-degree angle in your garden design. This technique enhances

sightlines, elongates pathways, and adds variety to the spatial arrangement.

Utilize Groups & Repetition

You want your landscape to look well designed, not random. Maintain a cohesive and visually appealing landscape by planting in large groups and utilizing repetition. Embrace a simple color palette and complementary foliage textures to avoid overwhelming the space. Landscaping is one of those things that not everybody can perfect, but everybody knows when it isn’t done right.

Match the Exterior and Interior Aspects

Extend architectural and interior styles into the garden to seamlessly integrate indoor and outdoor spaces. Consistent material choices in hardscaping enhance continuity and create a sense of spaciousness.

Opt for Multi-Faceted Furniture

Maximize functionality and comfort with furniture that serves multiple purposes. Choose statement pieces that conserve space and provide versatility, such as convertible seating or storage options.

Consider All Seasons

Ensure year-round visual interest by selecting plants that thrive in each season. Create a balanced planting scheme that incorporates foliage, blooms, and texture variations for a dynamic garden experience.

Engage the Senses

Enhance the garden atmosphere by incorporating fragrant herbs and tactile elements. Container gardening allows for easy access to aromatic plants, enriching the sensory experience within the limited space.

Photo courtesy of Beverly Companies.

Photo courtesy of Beverly Companies.

Utilize Multipurpose Planters

Experiment with clustered arrangements of pots to introduce seasonal variety and functional diversity. Combine ornamental and edible plants to maximize both aesthetics and utility.

Utilize Details

Elevate the visual appeal of your garden by incorporating intricate details. Features like

mosaic paths or small water features serve as focal points, adding personality and charm to the space.

Go Vertical

Harness vertical space to introduce greenery and visual interest. Install trellises, vertical planters, or artistic elements on walls and fences to optimize space utilization and enhance aesthetic appeal.

Layer for Depth

Generate visual depth by layering plants of varying heights and textures. Incorporate low-growing annuals at the forefront and utilize dwarf conifers for structural diversity throughout the garden design.

In the realm of commercial landscaping, the impact of a well-executed garden transcends mere aesthetics—it becomes a powerful tool

for enhancing customer satisfaction, promoting relaxation, and distinguishing your establishment from the competition. By embracing creativity and strategic design principles, you can transform small spaces into vibrant oases that captivate the senses and foster connection with nature. So, go forth with confidence, armed with the knowledge and inspiration to create inviting outdoor environments that leave a lasting impression on all who visit.

Photo courtesy of Beverly Companies.

Photo courtesy of Beverly Companies.

VTS survey: More than 80% of office landlords seeing an increase in lease renewals

By Dan Rafter, Editor

Aslow recovery in the office sector?

It’s better than no recovery at all.

That’s the takeaway from VTS’ fifth annual Global Landlord Report released in early April.

And here’s the best news from the report: VTS says that more than 80% of office landlords surveyed said that they have seen an increase in lease renewals.

According to the latest VTS Office Demand Index, the national demand for office space marked its sixth consecutive month of annual growth in March. And VTS’ 2024 Global Workplace Report showed that 62% of companies are following a hybrid work strategy in which their employes work part time in the office and part time remotely.

This indicate a slow but steady recovery for the office market, according to VTS officials.

“We are witnessing a conviction for a strong return-to-office in 2024 in contrast to years prior, and while positive for the market, it is becoming increasingly crucial for landlords to remain competitive to meet the evolving demands of tenants for enriched, intercon -

nected workspaces,” said Nick Romito, chief executive officer of VTS, in a statement.

Romito said that by putting the needs of their tenants first, office landlords are seeing more stickiness in leases, with fewer tenants leaving for better opportunities.

The VTS report highlights the top priorities and concerns of office landlords across the globe. According to VTS, office landlords this year are more concerned with boosting lease renewals by improving their tenants’ experiences than they are with leasing vacant space.

A total of 57% of respondents in VTS’ report said that they are focusing on retaining current tenants. How are they doing this? A total of 56% of landlords surveyed said that they are boosting their property management services and taking steps to enhance the experience of their tenants.

According to the report, landlords are twice as focused on property improvements this year as they are on portfolio diversification. The evidence for this comes in how office landlords are spending their dollars.

VTS found that landlords are increasingly investing in tenant experience technologies (cited by 33% of respondents), outdoor communal areas (31%), property operations (30%), food and beverage concepts (27%) and fitness centers (27%).

These efforts seem to be paying off. VTS reported that 82% of landlord respondents said that they are already seeing the length of office lease renewals either increasing or holding steady.

Another key finding from VTS’ report? Most landlords -- 84% -- said that they expect to invest more in technology in 2024 when compared to 2023. Only 4% told VTS that they expect their investment in technology to decline.

Property management software ranks as the top tech investment for landlords, with 44% of survey respondents citing it as their most important piece of technology. Next came leasing and asset management platforms, cited as a top investment choice by 33% of respondents, and digital marketing software, listed as a top choice of 26% of respondents.

In 2022, VTS found that only 4% of landlords were utilizing digital marketing software. That number spiked to 26% in 2024.

Social media ranks as the most powerful channel that office landlords use to find new commercial real estate tenants, with 33% of respondents saying that they have success with this method. On the other end of the spectrum? Landlords said that digital ads are the least effective method of finding new tenants.

VTS reported, too, that 34% of landlords spend more than $50,000 annually to create, maintain and update their digital web properties across their portfolio.

As in most industries, AI is expected to play an increased role in helping landlords manage their office properties. VTS reported that 45% of surveyed landlords said that they expect AI to help them make portfolio decisions, assist them in saving money on the operations of their properties and boost their marketing efforts.

Photo by Rodeo Project Management Software on Unsplash.

from page 1)

is a concert hall and not a movie theater: Independent theaters today can’t compete with multi-screen chain movie houses.

After sitting dormant for nearly 40 years, the Ramova was added to the National Register of Historic Places in 2021. That turned out to be a good year for the theater: It was the same year in which McHugh began its work on the building’s restoration and adaptive re-use.

McHugh didn’t just create a concert hall at the Ramova. The company also built out space for Other Half Brewing, an independent craft brewery and taproom; Ramova Grill, an 18-seat diner; and Ramova Loft, a second-floor 200-person event venue.

Totten told Illinois Real Estate Journal that when he and the construction crew first arrived on the site, it was like opening a time capsule. The theater’s ticket booth was still in place. The same curtains from the day the theater closed still hung from the ceiling.

The McHugh team also discovered just how much work it had in front of it, too, that day. As Totten said, the Ramova was in a serious state of disrepair after its many years of neglect. Severe water damage destroyed large areas of the plaster ceiling, and the terracotta façade on Halsted Street was missing several pieces.

“The state that it was in was incredible,” Totten said. “There were portions of the roof that were open to the sky for years. There were places where the plaster was completely gone. The ceiling had collapsed in some places and had turned to sand that covered the floor. You were walking ankle-deep in it.”

For more than two years, McHugh Construction worked with project architect O’Riley Office, Baum Revision and historic preservation specialists to restore the intricate architectural details that had long made the Ramova’s original Spanish courtyard-style lobby and auditorium such a stunning place.

Construction crews restored the theater’s pale-yellow stucco-style walls, rednotched archways and columns and decorative bronze wrought-iron faux windows

RAMOVA (continued

A look at the restored concert hall at the Ramova Theatre in Bridgeport. (Photo courtesy of McHugh Construction.)

Other Half Brewing is operating a taproom at the theater. (Photo courtesy of McHugh Construction.)

and balconies. McHugh also oversaw the restoration of the former movie palace’s clay-tile roof line and midnight-blue ceiling.

Crews ripped out the Ramova’s old movie theater seats, replacing them with a 22,000-square-foot barrier-free multi-level concrete floor that faces a large performance stage. Rows of spotlights now hang from the ceiling, casting multi-colored glows throughout the concert hall. The venue’s high-tech speaker system amplifies the onstage vocals and instruments. Construction workers installed multiple bars in the back of the auditorium and restored a second-floor balcony.

Tyler Nevius, developer of the Ramova, said that the restoration was a needed one for the often-neglected South Side of the city.

“The South Side of Chicago is home to the majority of local artists, but it has the least amount of high-quality space for them to perform and hone their craft,” Nevius said in a statement. “The city needed this and the South Side needed this.”

The renovations included the addition of a new green room designed with the goal of attracting top talent to Bridgeport. This new green room contains four separate suites – each with full baths – and an office for tour managers. To protect artists from paparazzi and unauthorized personnel, McHugh created direct paths for touring vehicles to arrive, unload equipment and privately access the greenroom and performance area.

“We wanted to create a place where artists would want to come and perform,” Nevius said in a statement. “One that looks great, sounds even better and where people can enjoy a show in comfort.”

Nevius said that it was important, too, to hire local tradespeople for the adaptive re-use project.

“It was important to us to have our teams reflect the community we’re a part of,” Nevius said.

The adaptive reuse project was funded by investments from the local populace, tax-increment financing subsidies from the city of Chicago, a state grant and a Historic Places loan.

Totten has been with McHugh for 26 years, and his focus during this time has been on the sports and entertainment side of the construction industry. He has worked on projects at Chicago’s Navy Pier, including the Sable Hotel at the end of the pier, and has lent his expertise to restoration projects on a variety of performance spaces across the Chicago market.

Few projects, though, presented the same challenges that McHugh faced on the Ramova.

“When we first got there, it was like stepping back in time,” Totten said. “We saw just how much work had to be done. So, we went to work. And looking at it now, it’s been an extremely satisfying project.”

ELIZABETH O’BRIEN represents developers and investors in a wide range of commercial real estate transactions, including acquisitions and dispositions, joint ventures, development, construction financing, construction contracts, and commercial leasing.

As the Real Estate Practice Group Leader, she provides keen legal insights and an innovative spirit to her clients and the industry.

The theater is also home to the Ramova Grill diner. (Photo courtesy of McHugh Construction.)

Chicago still a hotspot for data center demand

By Dan Rafter, Editor

Chicago has become one of the most in-demand data center markets in the country, according to the latest research from JLL.

In fact, JLL, in its second-half 2023 North American Data Center Report released in March, said that the Chicago market today is seeing unprecedented demand for data center space.

According to JLL, the Chicago market boasted more than 5.04 million square feet of data center space as of the end of 2023. Of that space, only 405,227 square feet was vacant. This lack of available space means that it can be challenging for data center users to find the square footage they need.

Some relief is coming, though. JLL reported that more than 2.28 million square feet of new data center space was under construction in the Chicago market as of the end of 2023. An additional 2.03 milllion square feet of data center space was planned.

The demand for Chicago-area data center space was also evident in the area’s absorption numbers. According to JLL, users absorbed 297.2 MW of data center space in the Chicago market in the second half of 2023, a big jump from the 88.5 MW absorbed in the first half of the year.

JLL said that Chicago is still seeing strong absorption in early 2024, too, across existing and planned data centers.

This doesn’t mean that the Chicago market doesn’t face challenges. As JLL says, the Chicago area faces power constraints that could make it difficult to build the mega-data centers that so many users want. The local market also faces higher labor costs and a shortage of buildable land.

JLL says that other markets with more available power and plentiful land pose a major threat to siphon data center business from the Chicago market.

Despite these challenges, the future looks bright for the data center market in Chicago, as demand doesn’t look to be slowing anytime soon. JLL pointed to new developments set to deliver in 2025 and 2026 as evidence of this. These developments include data centers

being built for T5, Prime, NTT, CyrusOne, CloudHQ, Aligned and Edged Energy.

Chicago is far from the only North American market seeing rising demand for data center space. JLL reported that in the second half of 2023 that the primary North American data center markets saw 3.4 GW of transactions signed, bringing the full year total for the year to a record of 4.3 GW. Secondary markets added 124 MW of absorption in the second half of 2023 and a total of 554 MW for the year.

Northern Virginia ranked as the largest North American data center market in 2023 with 1.6 GW of transactions.

Image by Pete Linforth from Pixabay.

WE’RE ON A MISSION

At Clear Height, we’re out Building Wealth and Creating Legacies, not only for ourselves, but everyone around us. THAT’S THE MISSION WE’RE ON.

Could we do real estate investing the old stodgy way? SURE.

Are we professional? YOU BET.

Smart? YOU KNOW IT.

Boring? ABSOLUTELY NOT.

Our CORE VALUE is to Have Fun + Excitement Everyday so LFG!

Avoiding the day-two downfall: Five ways to set up a project for success

By Eric Hoffman, Vice President & Healthcare Sector Lead at Project Management Advisors

There are a tremendous number of complexities to erecting the buildings that make up our skylines. Whether a property is a new build or a redevelopment, the team moving development forward—owners, project managers, general contractors and subcontractors—must all collaborate to ensure smooth delivery and activation of the space without delay.

While day-one tasks and challenges such as site selection, construction and delivery are crucial to the success of a project, the question of how a completed space will function in practice is often overlooked during the design and construction phase – to disastrous results.

These “day-two” issues, or problems that arise after construction has completed and building operations have commenced, are not exclusive to any one sector. Whether a building is a healthcare facility, a hotel or a multifamily property, securing stable occupancy and creating a functional space for the end user is

“While establishing a proper plan and a change committee is important, the process must continue to evolve alongside the project.”

essential to driving profitability and achieving investment goals.

Unfortunately, errors during design and construction that are not contemplative of operational functions can impede these stabilization efforts, requiring costly and time-consuming changes that, until sorted, can significantly impact revenue, daily operations and customer experience.

As day-two pitfalls can affect any asset class, developers and project managers must address potential operational challenges early in the planning and construction phases to mitigate potential issues. Here are five steps for establishing an early foundation for a successful day-two.

1. Align Day-One and Day-Two Plans

Construction and operations planning should be integrated from the beginning of construction. Combining day-one and day-two plans into one master roadmap will ensure that the project’s goals are aligned, and that any decisions made will support the building’s functional operations. Integrating these two strategies requires bringing consultants, including architects, engineers, construction managers, property managers and multi-disciplinary end user groups, together as early as possible.

To begin with, leaders for overall day-one and day-two work should be identified, and those people must align day-one and day-two schedules to increase accountability and transparency and create a cohesive budget that allows for the flexibility needed to address operational needs during the construction phase.

One way to create a unified schedule is pull planning. Rather than starting with the first task and working up toward the end goal, a pull planning strategy works in reverse. The project team will identify the opening date and the final task that needs to be done before the doors can open, then work backward to create a task list. Pull planning reveals overlaps in the schedule, helping to ensure each milestone is completed by the opening date.

The day-two goals should also be visible and transparent up front. For example, a healthcare facility may have the goal of 72% occupancy six months after opening, or three exam room visits per hour after four months. Knowing this information upfront and building a process with milestones and check-ins allows the team to more easily adjust elements to keep on schedule and ensure these goals are met. Methodology for how the information is going to be acquired and analyzed should be agreed to and implemented.

2. Establish an Owner Change Committee

An owner change committee is a group of key project stakeholders that can communicate and discuss necessary changes throughout the duration of a project. No matter the project, it’s inevitable that changes are going to happen, so it is imperative that there is an established process to deal with them as they arise.

An owner change committee can vet prospective modifications based on the necessity of the alteration and how it will impact the project, then provide a framework to effectively implement changes with minimal impact to the overall timeline and budget. In a healthcare property, an owner change committee is a multidisciplinary team, one that is involved beginning in the schematic design process to help provide direction from day one. The same team should remain involved from construction to activation.

The change committee can include everyone from development and construction stakeholders to the doctors that will work in the physical space, who can speak to operational efficiency. Additionally, everyone on the change committee should have visibility into both the upfront and long-term operational costs, which will help to avoid situations in which decisions are made based on “first” cost estimates, without building longer-term operational expenses into the timeline and project structure.

3. Create Milestone Check-Ins

While establishing a proper plan and a change committee is important, the process must continue to evolve alongside the project. Creating a schedule that includes regular check-ins with project stakeholders and end-users alike helps ensure that both construction and operational goals remain aligned as the project progresses, and that any potential challenges are dealt with as soon as possible.

The design and construction project team rarely has deep insight into how the end users are going to run the building. If set up properly, these meetings can validate design, confirm operational models and jumpstart the creation of building activation and stable occupancy models. As it can be especially costly and time

consuming to address updates and changes after the end-user has moved in, scheduling milestone meetings from the jump will allow stakeholders and owners to assess issues and reach targeted income-generation earlier.

4. Working Around Day-Two Updates

In an ideal world, once the end-users move into a building, the job of a project team would be done. Unfortunately, we live in the real world, and while regular check-ins with end users and the owner change committee can help to mitigate day-two problems, there are often situations in which a building needs to be operational before it’s finished. In these instances, it’s essential that the property can still generate income while these final kinks are worked out.

On a multifamily property, for example, this could mean opening the doors before common areas are complete, which will let ownership begin leasing efforts while completing construction of ancillary spaces. It is essential to anticipate potential day-two disruptions and build those into the schedule, budget and project roadmap from the beginning to ensure building safety and the customer experience are not compromised.

5. Keep End User Experience Top of Mind

The biggest threat of a day-two challenge is that it hampers the overall experience of the

property, which could derail leasing efforts in a multifamily property, hinder productivity and patient health in a medical setting, and delay stabilization across all property types.

While the building may still have a punch list on opening day, the feel and experience of the property should be true to the tenant’s brand. To ensure a cohesive experience on opening day, prioritize the essential elements of the property

that will create a familiar branded environment for guests, patients, users or doctors and staff, whether that is a welcoming lobby and amenities in a hotel, completed and operational units in a multifamily property, or a clean and wellequipped medical facility.

Day-two challenges can dramatically impact a development project. By taking a few proactive steps, engaging the right team members and

understanding what aspects of the project to prioritize, project owners can reduce or eliminate day-two problems and achieve stabilization earlier.

Eric Hoffman is Vice President & Healthcare Sector Lead at Chicago’s Project Management Advisors

Image by 12019 from Pixabay.

Technology dominates talk at National Multifamily Housing Council annual meeting

By Brad Lutz, Baker Barrios Architects

Earlier this month, I attended the National Multifamily Housing Council Annual Meeting and conference in San Diego. Among the dozens of presentations and insights shared during the event, there was one common theme: technology.

From AI to EVs to 3D printing, the multifamily industry is experiencing a tech-driven transformation unlike we’ve ever seen.

While some in the industry have been somewhat cautious of adapting new technology too quickly, concerned about the unknowns, I tend to take a more optimistic view of the possibilities in front of us. I found the future-facing ideas around technology presented at the NMHC conference exciting and am sharing two of my favorites below.

Applying AI

How might you design your multifamily property differently if you could predict the way residents would live in it? That was one of the many ideas that inspired me while listening to the engaging sessions on the topic of artificial intelligence.

This incredible technology is about so much more than chat bots. The data it can provide has the potential to inform decisions and operations throughout the lifetime of a multifamily project: site selection, programming and design, leasing, resident retention, property management and so much more – ultimately boosting NOI and ROI by saving significant time and money.

From an architectural perspective, I’ve seen how AI can save time and money in the design

“New ways of growing our food, such as hydroponics and aquaponics, have led to a rise in vertical farming.”

process alone, creating schematic visuals in a fraction of the time it previously took. It allows us to trial different architectural scenarios with our clients in seconds, rather than the hours or even days it used to take to create multiple rough schemes.

Another takeaway is understanding how imperative it is to incorporate technology on the front end of a project, rather than try to catch up and retrofit a property to incorporate it later. Even if a certain tech-forward element won’t be immediately implemented, having the necessary components or infrastructure incorporated in the design from the start allows the project to be ready for the future.

The NMHC Keynote Speaker Peter Diamandis, founder and executive chairman of the XPRIZE Foundation, said every company should have a Chief AI Officer, and I agree that this will be an essential role to leverage all this new technology in any business. At Baker Barrios, our take on the role is our Chief Creative Officer, Wayne Dunkelberger, who oversees our design-opps team.

We’ve invested years into research and testing of various AI and augmented-reality software and have developed a proprietary formula for utilizing tech throughout our architectural practice to yield more advanced and more successful project outcomes. As Wayne often notes, AI is simply a tool and is only as useful as the person operating it.

Given the prevalence of AI throughout society, it does make sense to have people on your team who know how to make the most of this tool, especially if it can generate more successful solutions and project results.

Tech and our EI (Environmental Impact)

The built environment is responsible for 40% of carbon emissions, and that same built environment is on track to overtake 18 million acres of farmland by 2040, according to American Farmland Trust. With the multifamily industry accounting for 34% of all new residential construction in 2022, we have a responsibility to address our impact on the environment, leading by example with the approaches and systems we implement. Again, technology is the key.

One of the most notable eco trends is the switch away from coal and oil to electric. The city of Chicago recently joined nearly 100 other cities and counties in the U.S. (mostly on the East and West coasts) restricting gas appliances and heating in new construction. These decarbonization efforts are here to stay and will likely only increase.

In Illinois, all new construction homes and multifamily buildings will also be required to provide EV-capable parking spaces (starting at 40% of the parking for large multifamily

Brad Lutz

projects, with that percentage increasing over the next 10 years to 70%) – the first state in the nation with such a law on the books.

My firm frequently counsels clients to not simply abide by minimum requirements but to future-proof their developments by taking efforts to the next level whenever possible, whether it’s a reduced parking/alternative transit program, or use of advanced and efficient systems for building electrical and mechanical systems. Including this technology during the initial build is far cheaper than playing “catch up” down the road.

Technology is also the future for a practice that’s been integral to human survival since the dawn of civilization: farming. And the multifamily industry is an ideal partner – and can even showcase this as a future-forward sustainable amenity!

New ways of growing our food, such as hydroponics and aquaponics, have led to a rise in vertical farming (pun intended!). While green roofs and urban rooftop farms have become more mainstream, the possibility of incorporating farmland into the vertical spaces on multifamily buildings are still mainly untapped in our country – though increasingly popular in Europe. There is an incredible opportunity for developers to be on the forefront of this in the U.S., and as an architect, I’m incredibly excited by the prospect.

To once again quote from Peter Diamandis’s keynote speech, “The day before something is a breakthrough, it’s a crazy idea.”

We are living in truly groundbreaking times. The multifamily sector has long been a leader

in innovation for the real estate industry, being the first to take those once “crazy ideas” and literally build them. I eagerly anticipate what lies ahead for multifamily.

Brad Lutz is managing principal in the Chicago office of architecture firm Baker Barrios and practice leader of the multifamily/residential practice.

Image by Barbara A Lane from Pixabay.

Another hit to owners: The costs of owning apartment buildings keep rising

By Dan Rafter, Editor

Owning an apartment building? It’s getting more expensive, a challenge that multifamily owners should expect to face throughout the rest of 2024.

That’s the key finding from a Yardi Matrix special report released April 3.

According to the report, the expenses of owning multifamily properties rose by 7.1%, or an average of $593 a unit, on a year-overyear basis as of January of 2024. Yardi Matrix reported that multifamily owners spent an average of $8,950 on annual expenses, such as insurance payments and maintenance, from January of 2023 to January of 2024.

In a bit of good news? While expenses continue to increase, they are growing at a slightly slower pace. Yardi Matrix reported that annual expenses rose 8.7% from 2021 to 2022. That’s higher than the 7.1% year-over-year increase recorded from 2023 to 2024.

Expense growth varied by expense type and metropolitan area.

“According to the report, the expenses of owning multifamily properties rose by 7.1%, or an average of $593 a unit as of January of 2024.”

The cost of property insurance recorded the biggest jump, with Yardi Matrix reporting that this expense increased by 27.7% year-overyear. Next came marketing expenses, which jumped 12.3%; administrative expenses, which increased by 9.6 percent; and the cost of repairs and maintenance, which jumped 8.8%.

Of the 129 markets reviewed by Yardi Matrix, 99 recorded increases of 5% or more and 28 had increases of 10% or higher.

The markets seeing the biggest jumps in multifamily ownership expenses were Spokane (18.9%); Tallahassee (18.8%); Lafayette, Louisiana (18.1%); Portland, Maine (14.7%); and Pensacola, Florida (14%). Property owners in the Midwest and Texas can at least celebrate that their operating expenses aren’t rising as high as they are in other markets.

The Southeast region of the country recorded the largest increase in costs, up 8.8%. Next

were the West (7.3%), the Midwest (6.4%), the Southwest (6%) and the Northeast (4.7%).

By market size, tertiary markets posted the largest increase (7.9%) followed by secondary markets (7.1%) and gateway markets (5.4%).

Yardi Matrix analyzed nearly 22,000 properties that use Yardi software in preparing its costs report.

Image by Gerd Altmann from Pixabay.

With consumer spending up and

savings

down, workers

turn

to part-time employment and second jobs for relief

By John Beuerlein, Chief Economist at the Pohlad Companies

Many economic reports in March came in stronger than expected, justifying the Fed’s current stance of being patient in making the decision to lower interest rates. Despite the downward trend in inflation readings since June 2022, the “last mile” in getting inflation down to the Fed’s 2% target is proving to be more challenging.

The ongoing resilience of the economy causes the Fed to be less concerned about the lagged impact of the tightening of the past two years, and more focused on the potential impact of lowering rates too soon.

Inflation and consumer spending

The February Core Consumer Price Index (CPI) increased 0.4% for the second

“It is interesting to note that over the last 12

months, 1,347,000 full-time jobs have been lost while 1,888,000 part-time jobs have been added.”

month in a row. Although the year-over-year core CPI edged down to 3.8% from 3.9%, the three-month annualized rate has accelerated

to 4.2%. The headline CPI also increased 0.4% for the month, causing its year-overyear growth rate to increase from 3.1% to 3.2%.

The Fed’s preferred measure for inflation, the core Personal Consumption Expenditure Index (PCE), recorded a 0.3% increase in February and remained at 2.8% year-overyear. It should be noted that inflation indices often show stronger readings at the beginning of the year due to many price adjustments that occur at the outset of a new year.

As for the consumer, despite a weaker than expected retail sales report, overall consumer spending was stronger than anticipated in February, driven by spending on services. The increase in spending occurred even though inflation-adjusted disposable personal income declined in February after a flat reading in January. With spending up and income down, personal savings declined to the lowest level since December 2022.

Economic indicators and GDP

The leading economic indicators (LEI) ticked higher in February following 23 consecutive months of decline. Further improvement in the LEI is needed to confirm that the economy is poised to re-accelerate, but at least this suggests that most of the factors that have been cited as holding back economic growth are stabilizing. The biggest positive contributor to the LEI was the improvement in the length of the average workweek, while the biggest negative contributor was interest rates.

Improvement was also seen in the manufacturing sector via the ISM survey for March. That index moved above the neutral level of 50 for the first time since September 2022. The Production, New Orders, and Employment components provided much of the

strength for the overall survey. Expectations for stronger demand and low customer inventory levels suggest support for future production.

The final reading on real GDP in fourth quarter 2023 was revised up to 3.4% from 3.2%. Stronger consumer spending and business investment were drivers of the upward revision. Nominal corporate profits in fourth quarter 2023 were up 4.1% during the quarter and up 5.1% year-over-year.

The labor market

The March employment report provided further evidence of the strength of the labor market. Non-farm payrolls in the establishment survey rose 303,000 – the largest gain since May 2023 – and the household survey showed an increase of 498,000 jobs. The unemployment rate dropped back to 3.8% from 3.9%, the growth rate of average hourly earnings declined from 4.3% to 4.1% which was the weakest growth since June 2021, and the average weekly hours worked ticked higher.

In a separate report, the National Federation of Independent Business (NFIB) said that the net percent of firms planning to raise worker compensation decreased from 26% to 19%, not only fully reversing the jump in compensation plans that occurred in late 2023 but also hitting its lowest level since March 2021.

It is interesting to note that over the last 12 months, 1,347,000 full-time jobs have been lost while 1,888,000 part-time jobs have been added. Consequently, on a net basis, the yearly gain in jobs has come from parttime employment. Multiple job holders have increased by 492,000.

Interest rate expectations

As expected, at their mid-March meeting the Federal Open Market Committee (FOMC) kept the target range for the Fed Funds rate at 5.25% to 5.50%. Their official statement following the meeting said that they don’t “expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2.0%.”

Of particular interest was the economic projections that the FOMC updates on a quarterly basis. The median projection for real GDP growth (from fourth quarter 2023 to fourth quarter 2024) was revised up to 2.1% from 1.4%. The median projection for core PCE inflation in fourth quarter 2024 was revised up to 2.6% from 2.4%.

On the topic of interest rate cuts, the median forecast of the 19 members was for three interest rate cuts this year. Interestingly, 10 members forecast three or more cuts, while nine members forecast two or fewer cuts. In other words, although the median projection came out as three cuts, it was a close call that could have been changed by the forecast of a single committee member.

Undoubtedly, the Fed is leaning towards cutting rates this year at some point. However, the stickiness of inflation in some categories along with the strength of the labor market is causing

them to be patient. The recent rebound in some economic metrics has reduced the urgency of a near-term interest rate cut. Further evidence that inflation is moving sustainably toward

their target of 2.0%, along with the continued rebalancing of supply and demand in the labor market, will be necessary for the FOMC members to have the confidence to make the initial

cut in rates. Markets have moved expectations for the timing of the first interest rate cut to July.

Photo by Eric Prouzet on Unsplash

Some CRE good news: Report predicts jump in sales activity in all four major asset classes … even office

By Dan Rafter, Editor

Brokers, developers and lenders who worked through the challenges presented by high interest rates won’t be surprised to learn that investment sales volume fell for the second consecutive year in 2023.

But what about this year? Will investment sales activity pick up? A new report from Colliers predicts that it will. But how much this activity rises in 2024 is still unknown.

In its most recent Market Snapshot, Colliers points to an unsurprising reason for optimism in 2024: The Federal Reserve Board has signaled that it will no longer be increasing it benchmark interest rate. But while this is good news, there is some disappointment here: As Colliers says, the market initially predicted not just flat interest rates, but significant rate cuts this year. So far, that hasn’t happened.

At the same time, even with the Fed’s decision, borrowing costs will still be well above where they stood when many CRE deals originated, something that will cause challenges for the many refinancings expected this year. An estimated $2.8 trillion of loan maturities are expected through 2028. As Colliers asks in its report, how will these deals be capitalized?

What about individual asset classes? What does the future hold for them?

Multifamily: Colliers says that multifamily remained the most heavily transacted asset class as 2023 drew to a close. At the same time, it also posted the largest annual volume decline in sales activity of all the major asset classes last year.

Colliers reports that a record influx of new supply continues to impact the multifamily sector. This supply boost has resulted in falling asking rents in many parts of the country. Concessions are also on the rise.

However, Colliers says that multifamily is expected to remain the top choice of capital in 2024, leading all asset classes in sales volume. Fewer groundbreakings of new multifamily properties will take place this year, leading to an anticipated window of lower supply in the future, setting the multifamily market up for a new round of rent growth and stronger fundamentals.

Office: Colliers reports that office volume as a share of total sales hit a new low point in 2023, accounting for just 15.1% of all sales activity last year. CBD activity has been hit the hardest, with only $13.4 billion traded in 2023, the lowest volume since 2009.

“Because of its strong 2023 performance, Colliers predicts that retail will become a potential landing spot for capital in 2024 and beyond.”

The good news? Colliers says that the office market has likely hit bottom, and predicts that momentum and deal velocity will accelerate in 2024. Investors and lenders will be

Image by Vladey Meer from Pixabay

forced this year to move underperforming assets.

Industrial: The industrial market has long been a darling of investors. But even this sector saw sales activity fall in 2023, according to Colliers.

Sales volume last year aligned with activity in 2015 through 2019, according to Colliers. But the number of individual deals was lower, with today’s higher pricing propping up aggregate volume.

Sales volume peaked in the second quarter of 2023 and then declined in both the third and fourth quarters. Colliers, though, said that it expects increased sales activity in the industrial sector in the months ahead.

As Colliers says, industrial remains a highly liquid asset class, and should rank as the second-most heavily traded property type in 2024.

Retail: Retail bucked the trend in 2023, showing improved fundamentals last year. That led to an uptick in sales volume. According to Colliers, retail drove 16.7% of all sales volume in 2023, its highest aggregate mark since 2015.

Because of its strong 2023 performance, Colliers predicts that retail will become a potential landing spot for capital in 2024 and beyond.

The positives in the retail sector are many today. Colliers pointed to low unemployment, healthy job gains and wage growth as three of the bigger ones. There are some

potential worries: Consumer delinquencies on credit card and auto loan debt have risen. But overall, consumers seem ready to continue spending, Colliers says.

Image by Ronald Carreño from Pixabay.

CONSTRUCTION COMPANIES/GENERAL CONTRACTORS

MERIDIAN DESIGN BUILD

9550 W. Higgins Road, Suite 400

Rosemont, IL 60018

P: 847-374-9200 | F: 847-374-9222

Website: www.meridiandb.com

Key Contact: Paul Chuma, President; Howard Green, Executive Vice President

Services Provided: Meridian Design Build provides construction and design/build construction services on a national basis with a primary focus on industrial, office, medical office, retail and food and beverage work.

Company Profile: With a team of in-house professional project managers, Meridian has extensive experience coordinating the design and construction of new buildings, tenant improvements, and additions/renovations from 15,000 square feet to 1,000,000+ square feet.

Meridian Design Build has been a Member of the U.S. Green Building Council since 2007.

Notable/Recent Projects: Venture Park 47, Huntley, IL - 729,800 sf speculative industrial facility for Venture One Real Estate. Lion Electric, Joliet, IL - 928,500 sf electric bus / medium duty truck assembly plant for Clarius Partners. Greenwood Truck Terminal, Greenwood, IN - 125 door truck terminal on 43 acres for Scannell Properties.

PRINCIPLE CONSTRUCTION CORP.

9450 West Bryn Mawr Ave., Suite 120

Rosemont, IL 60018

P: 847.615.1515 | F: 847.615.1598

Website: pccdb.com

Key Contacts: Mark L Augustyn, COO, maugustyn@pccdb.com, James A.. Brucato, President, jbrucato@pccdb.com

Services Provided: Principle specializes in commercial and industrial property and is committed to providing clients with the highest level of design/build construction services with an absolute dedication to each project.

Company Profile: Design/Build General Contractor established in 1999 specializing in the design and construction of Build-to-Suit, Speculative, Retail, Food Processing, Expansions/ Additions, Tenant Improvements, & Specialty Facilities. Principle also has extensive experience in interior improvements, site evaluation, due diligence, and value engineering.

Recently Completed Projects include:

• 282,588 SF dry-cleaning facility for Tailored Brands, at 2000 Deerpath Rd. in Aurora, IL.

• 31,200 SF facility for Alvil Trucking, at 2570 Millenium Dr. in Elk Grove Village, IL

• 6,200 SF Warehouse for Superfast Trucking, at 1001 Raddant Rd. in Batavia, IL

VICTOR CONSTRUCTION

2000 Center Dr., Suite East C219

Hoffman Estates, IL 60192

P: 847.392.6900

Website: victorconstruction.com

Key Contact: Zak Schuttler, President, ZakS@victorconstruction.com

Services Provided: Victor Construction Co., Inc. manages projects from ground-up site developments to interior buildouts, specializing in retail, industrial, and commercial markets. Company Profile: Victor Construction Co., Inc. remains a family-owned and operated General Contractor. Having been in business since 1954, our firm has extensive experience managing every aspect of interior construction for the corporate, manufacturing, industrial, and retail sectors.

Notable/Recent Projects: Owens + Minor Distribution – 600K SqFt distribution facility that involved a full LED lighting upgrade, new HVLS fans, 200K SqFt section that required new cooling for medical distribution, an office renovation of 20K SqFt, and a new exterior employee pavilion.

ECONOMIC DEVELOPMENT CORPORATIONS

ECONOMIC DEVELOPMENT CORPORATION OF MICHIGAN CITY

Two Cadence Park Plaza

Michigan City, IN 46360

P: 219.873.1211

Website: www.edcmc.com

Key Contacts: Clarence Hulse, Executive Director, chulse@edcmc.com

Karaline Cartagena Edwards, Economic Development Manager, kcedwards@edcmc.com

Services/Demographic Info: Up-to-date inventory of commercial buildings, site selection and orientation tours

Incentives: Tax-Increment Financing, Façade Improvement Grants, Property Tax Abatements, Enterprise Zones, Job Training Programs

Recent CRE Activity: Double Track Northwest Indiana: $1.6 Billion development reducing train travel to Chicago to 60 minutes; The Franklin at 11th St. Station: $100 Million Development with Residential & Retail Space; “You are Beautiful”/SoLa: $311 Million Mixed-Use MultiFamily Development with 235 boutique hotel rooms & 174 Luxury Condos; Burn ‘Em Brewing: $3 Million Expansion project with 30 new jobs.

VILLAGE OF HUNTLEY

10987 Main Street

Huntley, IL 60142

P: 847-515-5268

Website: huntleyfirst.com, huntley.il.us

Key Contact: Melissa Stocker, Development Manager, mstocker@huntley.il.us

Services/Demographic Info: Huntley, a northwest suburban Illinois community of greater than 29,000 residents, is conveniently located at the crossroads of Interstate 90 and IL Route 47. Proximity to the interstate and to international and cargo airports in Chicago and Rockford make Huntley an ideal location for businesses looking to escape the congestion of more populated areas while reaping the benefits of a Chicago market location. Village of Huntley staff provides comprehensive services including site selection assistance and demographic resources, visit huntleyfirst.com to start the search for your new home for business. Residential construction continues with three subdivisions actively building. Huntley is home for your business, and home to the right employees for your business.

Population In Primary Trade Area: 97,283

Incentives: TIF District, Fast Track permitting and development approval process

CRE Activity: Huntley is home to leaders in business. Join Weber, Northwestern Medicine, Amazon and many others that chose Huntley as their home for business. Hampton Inn recently opened in Huntley. Amazon has begun operations in two Huntley facilities. E-Logistics firm headquarters are underway. Speculative development is underway and available near the tollway. Multiple retail strip centers are in the planning and construction phases. With land available for custom-tailored facilities, businesses seeking sites recognize Huntley as a prime location for operations.

FINANCE & INVESTMENT FIRMS

MARQUETTE BANK

10000 W. 151st Street

Orland Park, IL 60462

P: 708-364-9131

Website: emarquettebank.com

Key Contact: Gene Malfeo, Senior Vice President, gmalfeo@emarquettebank.com

Services Provided: Full line of Commercial, Business and Real Estate loans customized to your individual needs including: commercial and residential construction loans, commercial mortgages, equipment loans and working capital lines of credit.

Company Profile: Marquette Bank started in Chicagoland in 1945 and is still locally-owned/ operated. Expect quick decisions, competitive rates, easy application and personal service. Personal/business banking and lending, home mortgages, land trust services, estate planning, insurance services, wealth management and multifamily lending.

REAL ESTATE LAW FIRMS

WORSEK & VIHON, LLP

180 North LaSalle Street, Suite 3010

Chicago, IL 60601

P: 312.917.2307 P: 312.917.2312 | F: 312.596.6412

Website: wvproptax.com

Key Contacts: Francis W. O’Malley, Managing Partner fomalley@wvproptax.com; Jessica L. MacLean, Partner jmaclean@wvproptax.com

Services Provided: Worsek & Vihon, LLP represents tax payers in Illinois by limiting their property tax liabilities through ad valorem appeals. We have over 40 years of experience and can handle basic to the most complex assessment issues while offering the dependable, personalized attention our clients deserve. We have experience representing owners of all property types. In addition to filing thousands of appeals with the Cook County Assessor, we have been involved in numerous proceedings before various Boards of Review, the Illinois Property Tax Appeal Board, and the Circuit Court of Illinois, and have appeared before the Illinois Appellate and Supreme Courts.

Company Profile: Worsek & Vihon LLP, is a team of experienced attorneys singularly focused on real estate tax law. The firm is dedicated to minimizing property tax liabilities through strategic tax portfolio management, well-researched, creative appeal preparation and aggressive advocacy.